Agile Strategy Management in the Digital Age

foreword by dr david p. norton DAVID WIRAEUS AND JAMES CREELMAN How Dynamic Balanced Scorecards Transform Decision Making, Speed and Effectiveness AGILE STRATEGY MANAGEMENT DIGITAL AGE in the

Agile Strategy Management in the Digital Age

David Wiraeus • James Creelman Agile Strategy Management in the Digital Age How Dynamic Balanced Scorecards Transform Decision Making, Speed and Effectiveness

ISBN 978-3-319-76308-8 ISBN 978-3-319-76309-5 (eBook) https://doi.org/10.1007/978-3-319-76309-5 Library of Congress Control Number: 2018945201 © The Editor(s) (if applicable) and The Author(s) 2019 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland David Wiraeus Stratecute Group Gothenburg, Sweden James Creelman Creelman Strategy Alliance London, UK

I dedicate this book to my wife Vanja and our child Ella, as well as my sister Frida and parents Ulla and Anders, with all my love. David Wiraeus For my great nephews Kian Creelman and Ezra French and my great niece Arrabella French. Enjoy the long journey ahead. James Creelman

vii More than 25 years have passed since Bob Kaplan and I introduced the concept of the Balanced Scorecard through a Harvard Business Review article. This relayed the findings from a research project we led in 1990 with 12 large companies to find better ways to measure performance, rather than relying solely on financial measures. At that time, we were transitioning into the knowledge age, in which intangible assets were becoming more valuable than tangible ones, and where the increasing speed of change in markets meant that financial measures were no longer reliable predictors of future performance. Financial results would remain, and continue to be, important, at least for commercial entities, but what were the non-financial drivers of those outcomes? This was the question we grappled with. The answer proved simple and logical. Customers delivered financial results; the organization had to ensure its internal processes delivered value to the customer and that they possessed the required skills and capabilities to deliver those processes effectively and efficiently. These observations were translated into the Balanced Scorecard framework, which comprised Financial, Customer, Internal Process, and Learning and Growth perspectives, each of which contained objectives (what we want to achieve), measures and targets (how we will monitor progress), and initiatives (how we will deliver to those targets). A further question we wrestled with was why 90% of organizations failed to deliver to their strategy, even when it was well thought-out and logical. We found that the Balanced Scorecard could describe and operationalize strategies that previously were generally restricted to a very detailed strategic plan, Foreword

viii Foreword which rarely left the boardroom shelf. Bob and I chronicled the successes of the original tranche of scorecard users in our first book, The Balanced Scorecard: Translating Strategy into Action. In our continued research, we found that some of the early Balanced Scorecard users, such as Mobil Oil’s North American Division, gained additional value when the strategic objectives were laid out separately to show the causal effect from the learning and growth perspective, through internal processes to customer and financial. Furthermore, although originally launched to overcome strategic performance management and measurement challenges in commercial organizations, government and not-for-profit entities, such as the City of Charlotte, North Carolina, soon adopted the framework. However, to meet their needs, such organizations reordered the perspectives, with stakeholder at the top (typically replacing the term customer) and financial lower down the Strategy Map. These first Strategy Maps proved as valuable to users as the original Balanced Scorecard itself, as we explained in our second book, The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment and described fully in our third book, Strategy Maps: Converting Intangible Assets into Tangible Outcomes. The story did not end there. We continued to learn from the experiences of an ever-growing number of users. Our fourth book, Alignment: Using the Balanced Scorecard to Create Corporate Synergies, documented the value organizations gained from cascading the Balanced Scorecard from the corporate level to business units and then to operating departments and support functions, as well as being the basis for strategically aligning external stakeholders. Our final book. The Execution Premium: Linking Strategy to Operations for Competitive Advantage, set out to offer a complete strategy management system through a six-stage model: defining the strategy, translating the strategy, aligning the organization, aligning operations, monitoring and learning, and testing and adapting. However, even completing the fifth and final book does not mean the end of the story. On introducing the Balanced Scorecard framework and methodology, Bob Kaplan and I realized we were launching a revolution, not a static system. We knew it would continue to evolve to meet the strategic requirements of organizations in ever-changing and fast-moving markets. Our work, and most notably the final book, serves as the inspiration for this book, Agile Strategy Management in the Digital Age  – How Dynamic Balanced Scorecards Transform Decision Making, Speed, and Effectiveness.

Foreword ix Just as Bob and I grappled with the challenges of transitioning from the industrial age to the knowledge age, Wiraeus and Creelman turn their attention to the challenges of moving into the digital age. Changing roles from Balanced Scorecard historian to Balanced Scorecard futurist, the authors inventory the issues that must be integrated into the management systems of the future – They are to be commended for the audacity of their undertaking and for the reach of their results. The revolution continues. Massachusetts David P. Norton March, 2018

xi This book could not have been written without the advice, knowledge, and support of many people, whom we here acknowledge. Bill Barberg (Insightformation), James Bass (Certified Scrum Professional), Bjarte Bogsnes (Statoil), James Coffey (Beyond Scorecard), Deepanjan Chakrabarty (previously Palladium), Marcello Coluccia (Imerys Graphite & Carbon), Jade Evans (Palladium), Liam Fahey (Leadership Inc.), Elena Gómez Domenech (Palladium) Mihai Ionescu (Strategys), Saliha Ismail (Ministry of Works,  Municipality Affairs & Urban Planning, Bahrain), Brett Knowles (pm2Consulting), Stanley Labovitz (SurveyTelligence), Armen Mnatsakanyan (ConconFM), Sandy Richardson (Collaborative Strategy), Hubert SaintOnge (Saint-Onge Alliance), Alistair Schneider (startupsinnovation.com), Andreas de Vries (Oil & Gas Strategy Management Speuncialist expert), Iain Wicking (Oyonix Group). We also extend our gratitude to Dr. David Norton for providing the Foreword to this book and to all our ex-colleagues in Palladium, who shared their knowledge and experience with us over many years. Thanks also to Palgrave Macmillan’s Stephen Partridge and Gabriel Everington for their continued support and guidance. Finally, James would like to thank Matt Sabbath Stark, Hugh Sturrock, Hugh Macleod, and Anto Brownes for their many nights in the Earl of Derby, Kilburn, London, patiently listening to his constant talking about the writing of the book. Acknowledgements

xiii 1 Digital Age Strategy Management: From Planning to Dynamic Decision Making 1 Introduction 1 No “Perfect” Management Solution 1 It’s All About Evolution 2 Common Challenges 5 The Scourge of Silo-Based Working 6 The Strategy Function and Process 8 Assumptions that Must Be Verified in Execution 10 End-to-End Process Management 10 Strategic Innovation 12 The Importance of Agility 13 An Agile and Adaptive Model for Strategy Execution in the Digital Age 14 Parting Words: Shifting Paradigms 19 Self-Assessment Checklist 20 References 21 2 From Industrial- to Digital-Age-Based Strategies 23 Introduction 23 Challenging the Notion that “Strategy is dead!” 25 Defining Strategy 26 Defining the Sense of Purpose 28 Finance-Based Planning 34 Contents

xiv Contents Capturing the Voice of the Customer 36 From Finance-Based to Technology-Based Planning Self-Assessment Checklist 42 References 44 3 Agile Strategy Setting 45 Introduction 45 Crafting a Vision Statement 45 Identifying the Value Gap 48 Environmental Scanning 49 SCOPE Situational Analysis 53 The Danger of Being Frozen in Time 54 Senior Management Interviews 55 Using an External Facilitator 56 A Strategic Change Agenda 59 Parting Words 62 Self-Assessment Checklist 65 References 66 4 Strategy Mapping in Disruptive Times 69 Introduction 69 Starting with the Strategy Map 69 Writing Objectives 70 Keeping Strategy Maps Focused 73 Objective Statements 73 The Value of Strategic Themes 75 The Power of Cause and Effect 79 Parting Words 83 Self-Assessment Checklist 87 References 88 5 How to Build an Agile and Adaptive Balanced Scorecard 89 Introduction 89 The Purpose of KPIs 90 Four Steps of KPI Selection 92 The Balanced Scorecard Is Not a Measurement System 96 The Science of Measurement 98 Setting Targets 103 Choosing Strategic Initiatives 106

Contents xv Parting Words 109 Self-Assessment Checklist 110 References 112 6 Driving Rapid Enterprise Alignment 113 Introduction 113 Traditional Approaches 113 An Agile Approach 117 Team Discussions 120 Alignment and Synergies 122 Parting Words 125 Self-Assessment Checklist 126 References 127 7 Aligning the Financial and Operational Drivers of Strategic Success 129 Introduction 129 Aligning Budgeting with Strategy 129 Killing the Budget 134 Linking Operations to Strategy 139 Parting Words 147 Self-Assessment Checklist 148 References 149 8 Developing Strategy-Aligned Project Management Capabilities 151 Introduction 151 Agile Project Management 153 The Transformation Office 156 Measuring Impact 159 A Portfolio Approach 160 Parting Words 162 Self-Assessment Checklist 165 References 166 9 Unleashing the Power of Analytics for Strategic Learning and Adapting 167 Introduction 167 Correlations and Causality 168

xvi Contents Analytics and KPIs 169 Analytics and Decision Making 169 Advanced Analytics and Strategy Management 172 Required Capabilities 175 Simple Analytics 177 Performance Reviews 179 Strategy Reports 182 A Decline in the Importance of KPIs 182 The Strategy Refresh 183 Implications for the Strategy Office: Practitioner View 185 Parting Words 186 Self-Assessment Checklist 189 References 190 10 How to Ensure a Strategy-Aligned Leadership 191 Introduction 191 The Importance of Context 192 Leadership for the Execution of Strategy 193 Strategic Leadership: Research Evidence 199 Agile Leadership in an Age of Digital Disruption 201 Assessing the Models 204 Parting Words 205 Self-Assessment Checklist 205 References 206 11 How to Ensure a Strategy-Aligned Culture 207 Introduction 207 Defining Culture 209 Corporate Values 210 Leadership and Culture 213 Driving Culture Change with the Balanced Scorecard 214 Cultural Assessment 215 Integrating Data 216 Parting Words 218 Self-Assessment Checklist 222 References 223 12 Ensuring Employee Sense of Purpose in the Digital Age 225 Introduction 225 Gallup Research Evidence 225

Contents xvii Changing the Employee-Employer Relationship 227 The End of Appraisals 228 The Dangers of Assigning KPIs to Individuals 229 Changing the Conversation 230 Theory X and Theory Y 231 A Sense of Purpose 231 Deloitte Research Findings 232 Communication 234 Human Capital Development to Execute Strategy 237 Parting Words 238 Self-Assessment Checklist 240 References 241 13 Further Developments: Driving Sustainable Value Through Collaborative Strategy Maps and Scorecards 243 Introduction 243 Corporate Social Responsibility 243 Triple Bottom Line 244 Nova Nordisk Case Illustration 244 Sustainability Strategy Map 245 Shared Value 248 Shared Value Explained 248 Positive Impact 249 Networked Organizations 249 Case Illustration: Thriving Weld 250 Robust Shared Measurement System 252 Improved Engagement and New Actions 254 Parting Words 254 Self-Assessment Checklist 256 References 257 14 Conclusion and 25 Key Strategic Questions 259 Introduction 259 Agile and Adaptive 259 25 Key Strategic Questions 260 Stage 1: How to Formulate Strategies for the Digital Age 260 Stage 2: How to Build an Agile and Adaptive Balanced Scorecard 263 Stage 3: Driving “Rapid” Enterprise Alignment 265 Stage 4: Getting Results Through Agile Strategy Execution 266

xviii Contents Stage 5: Unleashing the Power of Analytics for Strategic Learning and Adapting 268 Underpinning the Model 270 Final Words 272 References 272 Index 273

xix Fig. 1.1 First generation Balanced Scorecard 2 Fig. 1.2 A Strategy Map. (Source: Palladium) 3 Fig. 1.3 The Execution Premium Process 4 Fig. 1.4 Agile and adaptive strategy execution model 5 Fig. 1.5 Age 2 Strategy Management System 20 Fig. 2.1 Stage 1: How to formulate strategies for the digital age 24 Fig. 2.2 Mapping the customer journey 38 Fig. 3.1 Stage 1: How to formulate strategies for the digital age 46 Fig. 3.2 A PESTEL analysis 50 Fig. 3.3 Porter’s Five Forces framework 50 Fig. 3.4 A SWOT analysis template 51 Fig. 3.5 Strategsys SWOT analysis. (Source: Strategsys) 52 Fig. 3.6 Strategic Change Agenda 60 Fig. 3.7 FBI Strategic Change Agenda 61 Fig. 3.8 FBI strategy map 62 Fig. 3.9 Strategic Change Agenda, arranged from four perspectives 63 Fig. 4.1 Stage 2: How to build an “agile,” and “adaptive,” Balanced Scorecard System 72 Fig. 4.2 Strategic themes within the internal process perspective 76 Fig. 4.3 Example of strategic themes within customer and internal process perspectives. (Source: Palladium) 76 Fig. 4.4 A.W. Rostamani strategic pillars 77 Fig. 4.5 Mobil oil linkage model for 1994 81 Fig. 4.6 Intellectual capital model 82 Fig. 4.7 The risk Bow-Tie 86 Fig. 5.1 Stage 2: How to build an “agile,” and “adaptive,” Balanced Scorecard System 90 Fig. 5.2 Three sub-processes of hospital example strategic objective 94 List of Figures

xx List of Figures Fig. 5.3 Initiative scoring model 108 Fig. 6.1 Stage 3. Driving rapid enterprise alignment 114 Fig. 7.1 Stage 4: getting results through agile and adaptive strategy execution 130 Fig. 7.2 Statoil’s alternative to the budget 132 Fig. 7.3 Statoil’s menu for managing costs 133 Fig. 7.4 Using rolling forecasts alongside Balanced Scorecard targets and initiatives. (Source: Palladium) 137 Fig. 7.5 Driver models provide the analytical framework to focus on key leverage points and to link operational KPIs and action plans to strategic priorities 137 Fig. 7.6 Decomposing an internal process objective into operational drivers and KPIs 145 Fig. 7.7 Patient access operational dashboard 146 Fig. 8.1 Stage 4: getting results through agile and adaptive strategy execution 152 Fig. 8.2 Execution: the “seventh” stage of the execution premium process 152 Fig. 8.3 The roles of the three offices within a transformation office. (Source: ShiftIn) 159 Fig. 8.4 Initiative realization time-lag. (Source: Synergys) 161 Fig. 9.1 Stage 9. Unleashing the power of analytics for strategic learning and adapting 168 Fig. 9.2 The 4Vs of big data 170 Fig. 9.3 Gartner analytic ascendancy model. (Source: Gartner) 171 Fig. 9.4 A Fishbone diagram 177 Fig. 9.5 The five whys problem solving tool 178 Fig. 10.1 Strategy-aligned leadership and culture 192 Fig. 10.2 The Leadership for the Execution of Strategy Model. (Source: Palladium) 194 Fig. 11.1 Strategy-aligned leadership and culture 208 Fig. 11.2 A Strategy Map with a “build a high performance culture” objective 214 Fig. 11.3 High-level Eggi schematic, showing alignment as the core focus. (Source: SurveyTelligence) 221 Fig. 12.1 Create a strategt-aligned workforce for the 4th industrial revolution 226 Fig. 12.2 The causal relationship between the four human capital pillars and ultimate financial or mission success 237 Fig. 13.1 A Sustainability Strategy Map. (Source: pm2Consulting) 246 Fig. 13.2 A Sustainability Strategy Map aligned to the 21 Sustainability Business Goals. (Source: pm2Consulting) 247 Fig. 13.3 Thriving Weld County Strategy Map. (Source: Insightformation) 251

xxi Table 1.1 Self-assessment checklist 21 Table 2.1 Self-assessment checklist 43 Table 3.1 Self-assessment checklist 66 Table 4.1 Self-assessment checklist 88 Table 5.1 Self-assessment checklist 111 Table 8.1 The difference between traditional and agile approaches to project management 154 Table 8.2 Self-assessment checklist 166 Table 9.1 Performance area breakdown for customers that provided an overall rating of 5 179 Table 9.2 Performance area breakdown for customers that provided an overall rating of 3 179 Table 9.3 Self-assessment checklist 189 Table 10.1 Self-assessment checklist 206 Table 12.1 Self-assessment checklist 241 Table 13.1 Self-assessment checklist 256 List of Tables

© The Author(s) 2019 1 D. Wiraeus, J. Creelman, Agile Strategy Management in the Digital Age, https://doi.org/10.1007/978-3-319-76309-5_1 1 Digital Age Strategy Management: From Planning to Dynamic Decision Making The Plan is Nothing, Planning is everything, General (later President) Dwight Eisenhower Introduction Let’s get the clichés out of the way (for now!). We live in turbulent, unpredictable times. Constant disruption is the new status-quo. We need to be more customer-centric. We live in a digitally driven world, where data and ideas move across the globe and at the speed of light and the touch of a button: the digital economy is changing everything. We have the most highly educated workforce in history and the Millennials are fundamentally changing the essence of the employer-employee relationship. We could go on. Billions of words are being written in books, blogs, and so on, and as many again spoken in podcasts, seminars, conferences, and their like, explaining what all this means in terms of strategic management, future organizational structures, teamwork, innovation, and the rest. Perfect solutions—the much sought-after magic bullets—are being proffered. No “Perfect” Management Solution Here’s our take: various frameworks, models, and solutions will emerge to capitalize on the opportunities of the digital age (or the now often-called 4th industrial revolution) and to manage the accompanying risks. We cannot,

2 with any degree of accuracy, predict which will be particularly useful. No one has ever accurately predicted how revolutions will play out or what a postrevolutionary world will look like: it is likely that when it comes to how organizations go to market and create value, there will never be such a time as post-revolutionary. We can be more confident in predicting that there will never be a “perfect” management solution. Rather, there will be a combination of approaches that will work well in a specific context for a specific timeframe, before becoming dysfunctional and no longer appropriate. To add another cliché, we might always be cursed to, “live in interesting times.” It’s All About Evolution Think of it this way: the model we propose builds on the seminal works of many pioneering thinkers. Most notably, the ground-breaking work of Harvard Business Professors Robert Kaplan and Dr. David Norton in evolving the Balanced Scorecard Strategy Execution System. The Balanced Scorecard was introduced as essentially a measurement system that addressed the issues of being overly reliant on financial metrics for managing organizations by adding the non-financial balance (Fig. 1.1 shows the first generation Balanced Scorecard) [1]. The next step saw the inclusion of Strategy Maps to capture causal relationships between the non-financial drivers and the financial outcomes (Fig.  1.2) and, finally, to the articulation of the Execution Vision and StrategyObjectives Measures Targets Initiatives Learning and Growth “To achieve our vision, how will we sustain our ability to change and improve?” Objectives Measures Targets Initiatives Internal Business Processes “To satisfy our shareholders and customers, what business processes must we excel at?” Objectives Measures Targets Initiatives Financial “To succeed financially, how should we appear to our shareholders?” Objectives Measures Targets Initiatives Customer “To achieve our vision, how should we appear to our customers?” Fig. 1.1 First generation Balanced Scorecard D. Wiraeus and J. Creelman

3 Premium Process (XPP), to align operations with strategy. Figure 1.3 shows the stages of the XPP, with the sub-steps for each stage. The Balanced Scorecard System, as we shall call it, has evolved continually since its introduction through a seminal Harvard Business Review article in 1992. In an interview with one of the authors, Dr. Norton said, “Bob Kaplan and I launched a revolution, not a static system. It will continue to evolve.” That the originators never trademarked the Balanced Scorecard is testament to their commitment to its evolution and the input of others. Over the last couple of years, Dr. Norton has been describing a model for Age 2 Balanced Scorecard Systems (see Panel 1). Learning from Genetics As an allegory, think of genetics. There’s a strong scientific argument that the human being (or any other being) is not actually that important. It is simply a vehicle for genes to continue to survive and, through genetic mutations, evolve to better deal with the challenges of their changing environments. Strategy management is no different. Whatever the vehicle is, what is important is the thinking that underpins the system. New ideas will be introduced (read genetic mutations). Many will be discarded. Others, which are found to be particularly useful, will be kept. Simple evolution. Stop evolving and you die. Create Shareholder Value F1. F2. F3. Enhance our customer experience through superior products and services based on natural health solutions Customer / influencer (corporate customer, distributors, opinion leaders, researchers) Consumer / patient (end user) Community C1. C2. C3. C5. C6. C4. Have the right strategic processes to enable the delivery of the strategy I1. I2. I3. I4. I5. I6. Build a sustainable dynamic learning organisation L1. L2. L3. Market Making Products and services Corporate infrastructure Fig. 1.2 A Strategy Map. (Source: Palladium) Digital Age Strategy Management: From Planning to Dynamic…

4 Develop Strategy 1.1 Benchmark with best-practices 1.2 Visioning 1.3 External and Internal competitiveness analyses 1.4 Value Gap and Quantification of Vision 1.5 Identification of Change Agenda 1.6 Tool for strategic planning Translate Strategy 2.1 Thematic Framework 2.2 Strategy Map 2.3 Performance Program (measures & targets) 2.4 Initiative prioritization & funding (STRATEX) 2.5 Governance Model 2.6 Office of Strategy Management Align Organisation 3.1 Cascading to Business Units 3.2 Cascading to Shared Services 3.3 Cascading to Individuals 3.4 CPM framework & dashboard deisgn 3.5 Strategic Communication 3.6 Capability building Plan Operations 4.1 Budgeting linked with strategy 4.2 Key process improvements linked with strategy 4.3 Initiative portfolio management 4.4 Driver-Based Modeling / Planning / Forecasting 4.5 Rolling Forecasts / Resource Allocation 4.6 Close, Consolidate, Report Monitor & Learn 5.1 Monthly operational reviews 5.2 Quarterly strategy reviews 5.3 Business Information Platform 5.4 Analytic Information Architecture 5.5 Master Data Management 5.6 Quality control and audit Test & Adapt 6.1 Customer value-proposition Cocreation 6.2 Yearly strategic hypothesis reviews 6.3 Profitability analysis 6.4 Strategy correlations/updates 6.5 Emerging Strategies 6.6 Decision making Fig. 1.3 The Execution Premium Process D. Wiraeus and J. Creelman

5 Based on the authors’ many years’ experience, research, and hundreds of organizations worked with in shaping and implementing strategic plans, this book adds to the evolutionary, revolutionary, genetics-driven approach. We have myriad observations of successes, failures, and particularly damaging misconceptions. Common lessons emerge, which we will share throughout this book. Common Challenges Certain aspects of conventional Balanced Scorecard implementations, as well as the Execution Premium Process, have proven problematic or, more regularly, poorly understood. Kaplan and Norton’s last in their seminal canon of five books that traced the evolution of the Balanced Scorecard System was published back in 2008 [2]. As they and others comment, time has moved on, but evolution does not stop. Figure 1.4 shows our Agile and Adaptive Model for Strategy Management in the Digital Age. We have no doubt that systems such as the Balanced Scorecard are still required. The fundamental issues that underpinned the introduction of the scorecard system and other similar frameworks (dealing with more dynamic markets, the potential of technology, etc.) are seismically more challenging now than they were in the 1990s or even the first decade of this century. The How to Formulate Strategies for the Digital Age How to Build an “Agile,” and “Adaptive,” Balanced Scorecard System Getting Results through Agile and Adaptive Strategy Execution Unleashing the Power of Analytics for Strategic Learning and Adapting Driving Rapid Enterprise Alignment • Map the enterprise strategy • Develop a causal hypothesis • KPI and Target identification • Identify breakthrough strategic initiatives. • Identify strategic risks • Vertical enterprise alignment • Horizontal enterprise alignment • Devolve ownership and responsibility • Agile cross-enterprise collaboration • Align financial planning systems with the strategy • Driver-based rolling forecasts • Identify key operational drivers of strategic goals • Strategy-aligned process improvement • Strategy-aligned project management • Continually test the strategic hypothesis • Master advanced causal analytics • Analytics-driven strategy reports and reviews • Aligning operational analytics with strategic analysis • Apply an adaptive learning feedback loop. • Clarify enterprise sense of purpose • Test the business model • Disruptive innovation management • Co-create strategies with stakeholders • Create a Quantified Vision Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 • Leadership for execution • Align the culture with strategy • Strategy-focused value statements • Create a culture of learning • Strategic Communication Strategy-Aligned Leadership and Culture Create a Strategy-Aligned Workforce for the 4th Industrial Revolution • New employer-employee contract employee engagement • Two-way performance conversations • Individual sense of purpose Fig. 1.4 Agile and adaptive strategy execution model Digital Age Strategy Management: From Planning to Dynamic…

6 central “story” of the book is how the principles of the Balanced Scorecard System are evolving for these early stages of the digital age. But first, let’s step back in time—before the first scorecard article. Indeed, all the way back to 1911. What happened in that year has profound implications for today. The Scourge of Silo-Based Working At the turn of the twentieth century, Western economies were facing thenrevolutionary change as they began to move from a system of craft-based working to leveraging developments in machinery and automation to enable mass production. Various thinkers grappled with mastering this transition, but the most impactful perhaps was Frederick W. Taylor, because of his 1911 published monograph The Principles of Scientific Management, [3]. Faced with increasingly complex industrial models and, at best, a semiliterate workforce, Taylor focused on “simple jobs for simple people.” He advocated the training of workers to do very specific jobs and not think outside of that role. He strongly believed that it was the role of management to “think” and workers to “do.” More than that, he introduced (or scientifically institutionalized) mistrust as a normal part of management. “Hardly a competent workman can be found who does not devote a considerable amount of time to studying just how slowly he can work and still convince his employer that he is going at a good pace,” is how he dismissed the value of an employee and why their “superior” bosses should treat them with suspicion. Versions of Taylor’s system, such as Fordism (introduced by the Ford Motor Company to drive efficiency into the mass-production of Automobiles), institutionalized this “silo”-based working approach and the accompanying fearand control-based culture. From the second decade of the nineteenth century onwards, people were encouraged (ordered) to think only of their silo—of their narrow sphere of operations. Terms such as cross-functional teamwork, collaboration, and so on were not part of the scientific manager’s lexicon. Such siloed thinking essentially introduced the idea of function-based working. We have since continued to structure organizations according to this template: even in the second half of the twentieth century, with the introduction of strategic planning (see below), HR, IT, and so on, the idea of the function prevailed: this is your job, build expertise, and just do that. We have built professions around these functions. Think also of the now widely used contact centres by banks and the like. The person on the other end of the line can only answer questions that relate to their own job (and to a strict script). Nothing outside of that is their job. Therefore, the customer is transferred to another department—and typically must wait on the line for some time: a source of continued irritation to customers. D. Wiraeus and J. Creelman

7 Frederick W. Taylor would still recognize much of his thinking in today’s organizations, despite their espousing of commitment to values, empowerment, and all this nice stuff. Taylor dismissed front-line or factory-floor workers as idiots and not to be trusted. Although appalling, such attitudes were common in the very hierarchical social systems of the time, when only a minority were well educated. However, to be fair, some of the thinking was very useful for transitioning to a systems-based approach to working. Today, we benefit from highly educated employees that are constantly contributing to and learning from the digital planet (OK, perhaps another cliché). We could ask, “Have workplace attitudes really moved on that much?” Have we stopped encouraging managers to be suspicious of their reports? If so, then why do research firms such as Gallup continually find that only a minority are engaged in most organizations? Research Findings According to the 2016 Gallup employee engagement survey, a staggering 67% of employees in the USA are disengaged, a quarter of whom are “actively disengaged” while at work (which, to be fair, is a better figure than many other countries). Actively disengaged means they hate the organizations they work for and will do as much as they can to do as little as they can—Taylor would call this the norm. Tellingly, the 33% engagement level in the US workforce is the highest it’s ever been from Gallup’s findings. However, this is only marginally better than the 30% in 2001 (and perhaps no different if we factor in confidence levels and intervals—see Chap. 5: How to Build an agile and adaptive Balanced Scorecard, in which we detail common mistakes in working with KPIs). Such a minor improvement is hardly a ringing endorsement for the billions of dollars ploughed into employee engagement/empowerment initiatives in the interim (and we can assign much of the improvement to improved economic conditions—the 30% figure fell during the so-named credit crunch). Taylorism had a devastatingly negative effect on employee morale, which in the second decade of the twenty-first century is still shockingly low [4]. A Significant Bottleneck Although perhaps understandable 100  years ago, and being how the Ford Motor Company, among others, delivered their early successes (but even then, the highly divisive and led to employee/company tensions that continue to this Digital Age Strategy Management: From Planning to Dynamic…

8 day), this functional approach to structuring work is today one of the most significant bottlenecks to successfully managing digital-age organizations. The functional mind-set encourages (and oftentimes positively rewards) individuals to think only about their specific contribution to the organization’s value delivery model—what happens elsewhere “is not my problem.” Functions become “personal fiefdoms,” which the functional head typically defends aggressively and, of course, fights for the most advantageous share of financial and other resources. It’s about promoting the function, not focused on what is required to deliver value to the customer. Look at how budgeting typically works to see the logic of this argument (we explain how the budgeting system must evolve for the digital age in Chap. 7: Aligning the Financial and Operational Drivers of Strategic Success). Seeking Mechanical Solutions In seeking new frameworks and models, many organizational leaders will still search for something to plug and play—mechanical solutions: again, in keeping with the industrial-age solutions of a century ago. Particularly worrisome here is the continued belief that a software tool can resolve all the issues. Even in these days of advanced data analytics, no single piece of technology will resolve the challenges of strategy formulation and implementation, but can be a powerful aid, when deployed properly, (see Chap. 9: Unleashing the Power of Analytics for Strategic Learning and Adapting). Organizational leaders repeatedly fall for these “instant remedies” that will automatically solve all their challenges, and then scratch their heads wondering why this did not happen. Strategy management cannot be automated, and no software solution can, or ever will, provide all the answers. Like it or not, managers and staff will also have to “think” and make decisions. Technology can greatly support that decision-making process, but cannot, or rather should not, become that process. The Strategy Function and Process So, let’s turn our attention to the inherent weaknesses of conventional strategic planning. As cited earlier, when strategic planning was introduced as a new organizational capability, it strictly conformed to the diktats of the mechanical industrial-age mind-set. D. Wiraeus and J. Creelman

9 As far back as 1994, Professor Henry Mintzberg explained in a Harvard Business Review article that, “the scientific management pioneered by Frederick Taylor …. separated thinking from doing and [created] a new function staffed by specialists, Strategic Planners. The expectation was that planning systems would produce the best strategies as well as step-by-step instructions for carrying out the strategies so that the doers, the managers of the business, could not get them wrong.” He went on to say that, “planning has not exactly worked out that way.” [5]. Indeed, over the 20+ years since Mintzberg’s work, various research projects have found that up to 80% of strategies “fail,” often regardless of how well formulated. This, we argue, is due to a fundamental error in how the strategy management process was originally designed and, sadly, is still managed. Research Evidence Early in 2016, a research project led by The Leadership Forum Inc., asked more than 200 mid-level managers and their direct reports in a global B2B company a simple question: “What are the three factors that most inhibit the execution of strategy in your business unit or more focused segment of the business?” What was startling about the replies was not what was said, but what was not. Although many words were applied to the internal barriers to strategy execution (inconsistent leadership, poor communication, lack of clarity, etc.), very little was said about the external barriers. Seemingly, on a day-to-day basis, little thought was given to how marketplace change, especially how the actions of rivals, customers and other actors, could overwhelm their plans. In the so-named digital age, we speak and write endlessly on the dangers of disruptive technologies, of living in a world characterized by constant change and uncertainty, of small start-ups suddenly and rapaciously eating market share. Yet for all the words, our actions demonstrate that we still cling, with almost religious fervour, to the tried and tested (and typically failed) approaches to strategy execution. That, once we’ve analysed, and captured in plans, the external world through SWOTs, PESTELs, Five-Forces, and so on, the focus is then solely on getting the inside of the organization aligned to the plan and the units/functions and departments working on delivering their own bits of it. The external world will stand still until the next scheduled planning cycle and resulting strategy refresh. Digital Age Strategy Management: From Planning to Dynamic…

10 The fact is that strategic planning and execution are not separate silos in a process—they are part of the same integrated, strategy management process, which also includes learning. There are many definitions of strategy (see Chap. 2: From Industrial- to Digital-Age-Based Strategies), but strategy is essentially about being clear as to what the longer-term strategy destination looks like (a quantified vision helps, see Chap. 3: Agile Strategy Setting) and, over a period, developing, or more likely enhancing, the capabilities to get there. In today’s marketplaces, these capabilities must be operationalized as quickly as possible. But, this is not all. Whatever definition is preferred, an underlying truism that is too often overlooked is that strategy is, as leading strategy thinker Hubert Saint-Onge, Principal of the Toronto-based Saint-Onge Alliance, says, “…a set of assumptions that need to be verified in execution.” Assumptions that Must Be Verified in Execution Note “a set of assumptions” and “verified in execution.” And herein lies a major fault in the strategy management process. Organizations systematically fail to understand that the beautiful plan painstaking crafted over several months must be proven in practice—and that, even in the best cases, reality will uncover flaws in the thinking. With the standard practice being to build the plan and then hand over to managers to implement without deviation or question, the assumptions are untested and the flaws unresolved. As Sir Winston Churchill once said, “However beautiful the strategy we have to sometimes look at the results” [6]. As we explain in Chap. 9, during implementation, advanced data analytics is enabling the testing of these assumptions and, as part of this, understanding the robustness of the hypothesis described in the cause and effect relationships between the objectives and perspectives that populate a Strategy Map. However, organizations must build the capabilities to respond to their findings in a timely manner: not to just capture and discuss at the following year’s strategy refresh. End-to-End Process Management To overcome this performance-sapping approach, senior management must remove their functional lenses and view strategy management as an integrated end-to-end process. D. Wiraeus and J. Creelman

11 End-to-end process management drives substantial efficiency and effectiveness gains, perhaps more measurably than any other intervention. This is possibly truer for the strategy management process than any other, given the prize at stake. This is not a new idea, as we have been talking about end-to-end process management for more than 20 years. But, it is not easy to do, due mainly to cultural resistance and fears of losing power and control (the all-important personal fiefdoms). However, when applied, it can really drive breakthrough performance improvements. Of course, the functional work still gets done, but in the context of the outcomes required from the process. Moreover, end-to-end process management has specific complexities for strategy management. As there will be many strategic thrusts to manage enterprise-wide, strategy execution cannot be viewed as one linear process, but as a collection of related processes. As we explain in Chap. 4, Strategy Mapping in Disruptive Times, strategic themes (through which objectives working to deliver the same outcomes) can be powerful aids here. The challenges of end-to-end process management are becoming even more complex due to how the nature of work is changing. In twenty-first century organizations, increasing amounts of work will be done by “nontraditional” employees (freelancers, contractors, etc.) and organizations will become more boundary-less, in that partners will take up more of the work in delivering increasingly complex value propositions. Within the organization itself, technology will make many processes virtual in nature, with parts done in different geographies and time zones, and held together by digital platforms. To add to the challenges, end-to-end process management and boundaryless working will necessitate the greater empowerment of knowledge workers—as the virtualized nature of work requires on-the-spot and more real-time decision making—and therefore the further moving away from the rule of the hierarchy and the still too-prevailing idea that management thinks and workers do. What this will look like is still a work in progress. Somewhat ironically, there will likely be something of a step back to the craft-based working that preceded Taylorism. In the digital age, the crafts will be primarily intangible in nature, as opposed to the tangible, physical work of much earlier centuries. New and rigorous governance models will need to evolve so as to deal with the many complexities of boundary-less working. Dismantling the organizational and people management structures introduced by Taylor and his contemporaries will take some time. Digital Age Strategy Management: From Planning to Dynamic…

12 Strategic Innovation If end-to-end process management is hardly a new concept, it is much more recent than Strategy itself (about 2500 years ago, Sun Tzu said in the “Art of War,” that strategy is now too important to ignore, [7]). But even strategy is a new kid on the block compared to innovation. Humans have been innovating since the big brain developed. Has there ever been a more impactful innovation than the wheel? The ability to make fire perhaps. Yet, innovation is currently a “buzz-word.” Today, along with strategy, innovation is “too important to ignore.” Consultancies specializing in innovation are flourishing and increasing in numbers (along with that one solution that will make the organization “innovative”). Conferences are selling out. Disruptive Innovation When we talk of innovation today, we normally speak of disruptive innovation, which was defined by Harvard Business School Professor Clayton M. Christensen in 1995 as “…innovation that creates a new market and value network and eventually disrupts an existing market and value network, displacing established market leading firms, products and alliances” [8]. However, disruptive innovation did not begin in 1995. For example, as explained in Chap. 2, it was disruptive innovation (and the understanding that organizations sold a “function” or solution and not a specific product or service) that led to the Ford Motor Company not just disrupting but obliteration an industry. As explained earlier, a version of the “scientific principles of management” helped make this happen. That said, many argue that today, given the breathtaking developments in technology since the mid-1990s, there is no such thing as disruptive innovation. As we also explain in Chap. 2, if you are being disrupted, you are simply not paying attention. This anchors back to organizations needing to pay more attention to external changes as they execute a strategy and seeing strategy as not just a single “end-to-end process,” but as dynamic, in which various stages feed backwards and forwards into others. Experienced strategy execution practitioner, Mihai Ionescu, Senior Strategy Consultant at the Romania-based Strategic Systems Consulting (Strategsys), and one of a select few advisors/ practitioners interviewed for this book, comments: D. Wiraeus and J. Creelman

13 So far, strategy management has been regarded more as a chain of discrete, sequential processes, while the operational management is essentially seen as a continuous process. It might not be like this anymore. The 4th industrial revolution is steaming ahead, enabling us to handle time, distances and information like never before, and allowing us to validate hypothesis about the future with more accuracy and much faster. A continuously deepening VUCA [Volatility, Uncertainty, Complexity and Ambiguity] requires strategy management techniques that don’t really exist today, because those currently in use have been created on the waves of the past industrial revolution. He adds that. “Instant communication, collaboration and co-creation, plus the anywhere-anytime access to rich, diverse and loosely-correlated information, can fundamentally transform the sequential formulation-planningexecution annual cycle into a continuous process, where all stages of the Execution Premium Process overlap and interact in time, as some interdependent swimming-lanes that exchange information and decisions along the way.” The Importance of Agility As much as anything, Ionescu’s observation speaks to two performance dimensions (that, as with most requirements today, meld into one) that are critical to succeeding in these early days of the 4th industrial revolution, in addition to the need to strategy as a single, inter-dependent process: agility and synchronizing the internal rate of change with the external rate. An agile enterprise can innovate, drive transformation change, and be flexible, whilst also maintaining a strong focus on strategy and on the customer. A useful definition of agility comes from the US-headquartered benchmarking firm, The Hackett Group, “[agility is] the ability of an organization to synchronize the internal rate of change of the business with the rate of change imposed by the external business environment.” An agile enterprise synchronizes with the external rate of change by inculcating, and constantly adapting, scalable and customer centric operations and digitally connected value chains that cut through hierarchies and organizational silos. They also leverage data analytics to capture and transform data into actionable knowledge that drives proactive decision making, [9] Digital Age Strategy Management: From Planning to Dynamic…

14 An Agile and Adaptive Model for Strategy Execution in the Digital Age This brings us to outlining the five stages (and a central steer and underpinning requirement) of our Agile and Adaptive Model for Strategy Management in the Digital Age, which we describe fully in the following chapters. Agile and Adaptive Agile points to sudden quick changes—being “able to move quickly and easily” according to the Cambridge English Dictionary, whereas it defined adaptive as “having the ability to change to meet different circumstances” (which does not necessarily mean quickly or easily). Stage 1, How to Formulate Strategies for the Digital Age Chapters 2 and 3 consider how the process of strategy formulation and planning is evolving for the digital age. It needs to be much quicker than has generally been the case historically, and with a lighter touch, while also better involving key managers that must implement the strategy, as well as planners. Moreover, there is a requirement to define the organization’s “sense of purpose.” This should be captured within a mission statement (and which, unlike vision statements, are not time bound and rarely change). Furthermore, there is a need to capture the voices of the customer, as well as other key stakeholders, so that all involved in the value chain are on the same page. Tools such as customer co-creation, in which customers are actively involved in shaping solutions, play an important role here—as well as stakeholder analysis. We will also explain how other newer approaches such as blue ocean strategy, business model innovation, technology-based planning, situational analysis, the OODA Loop, and so on, are helping create more relevant and agile/adaptive strategic plans. Also explained will be the importance of developing both longer-term and medium-term quantified visions that include (1) a quantified success indicator (a global benchmark perhaps, or revenue target), (2) a definition of the niche (where to compete), and (3) a designated timeframe (within two or five years). We also stress the value of creating a Strategic Change Agenda that describes the critical performance dimensions that the organization must master to deliver on the strategy with defined current, to desired, states. D. Wiraeus and J. Creelman

15 Stage 2, How to Build an Agile and Adaptive Balanced Scorecard System Chapters 4 and 5 take us into the creating of the Balanced Scorecard System, which comprises a Strategy Map and scorecard of Key Performance Indicators (KPIs), targets and initiatives. Although the original structure, as described by Doctors Kaplan and Norton, remains largely intact, we describe a process for more rapidly building scorecard systems—with less of a focus on building a “perfect” scorecard system that many organizations expect to simply plug and play. We emphasize the role of analytics to provide more of a useful steer to agile and adaptive execution and for continued testing of the assumptions of the causal relationships with the system. Furthermore, we explore many of the challenges that have often stymied attempts to build optimal scorecard systems, such as the absence of robust objective statements and not using tools such as driver-based models and Key Performance Questions to bridge the gap between objectives and KPIs. Another area that has been problematic for organizations is a general lack of understanding of the basics of the science of measurement, leading to their making, sometimes expensive, decisions based on what is believed the data is saying rather than what is actually being said. Stage 3, Driving Rapid Enterprise Alignment Historically, this has oftentimes been a slow and cumbersome process, topdown and imposed. This is increasingly problematic in today’s fast-moving markets. By the time the process is complete, at least some parts of the strategy are often out of date, or some of the assumptions on the corporate level Strategy Map are proven to be false, or at least only partly true. Turning around this beast of an enterprise scorecard system proves extremely challenging and performance sub-optimizing (and often not attempted until the next strategic planning cycle). Moreover, experience has shown that the conventional approach has often led to resistance from staff, who see it as little more than another measurement control system that they wished would disappear. In Chap. 6, we outline an approach for identifying the critical (and very few) objectives and KPIs to devolve (the spine of the organization) and then empowering teams to build their own scorecard systems that describe what they want to achieve over the coming period. As well as leading to greater Digital Age Strategy Management: From Planning to Dynamic…

16 buy-in and ownership, this transmits a message that senior management trusts their employees and believes in their abilities (Taylor must be spinning in his grave!). Proper governance still ensures alignment, but guided by flexibility and empowerment instead of rigid imposition. Stage 4, Getting Results Through Agile and Adaptive Strategy Execution In and of themselves, Strategy Maps and scorecards do not execute strategy, but are, rather frameworks for articulating the objectives, identifying KPIs, and so on. Indeed, the scorecard system is the final part of strategic planning. In Chaps. 7 and 8, for strategic plans to be implemented successfully, they must be effectively linked to financial planning, as well as strong project and process management capabilities. As strategic planning is no longer fit-for-purpose for the digital age, this is equally true for conventional financial planning processes, particularly the annual budget, which is time-consuming, overly detailed, and generally locks funding for a calendar year. Agility is missing. As a result, by the time they are published budgets are typically out-of-date and set funding makes it a challenge to quickly allocate/reallocate resources in response to emerging external opportunities and threats. What is required is a shift from the conventional budgeting process to a system based on driver-based rolling forecasts, which enable the agile allocation of financial resources. Moreover, from a strategy viewpoint, we recommend hardwiring this to a mid-term plan and work in tandem with a Strategy Map and Balanced Scorecard. Similarly, organizations need to be better at prioritizing the process improvement activities according to strategic needs, using models such as driver-based models to provide a more precise link between strategic goals and operational improvements. Stage 5, Unleashing the Power of Analytics for Strategic Learning and Adapting The next evolution of the Balanced Scorecard system is from being primarily a communication/alignment model to a framework for powerful performance analytics. As we explain in Chap. 9, advanced analytic tools are enabling more precise testing of the causal assumptions embedded within a Strategy Map, enabling both descriptive (what has happened) and predictive (what is likely D. Wiraeus and J. Creelman

17 to happen) analysis. Doing so also enables agile allocating of resources to the process improvements and other interventions with the greatest impact on desired results. Furthermore, such analytics enables organizations to identify best (and poor) practices and quickly share these across the enterprise. In the digital age, knowledge management systems that are truly strategy-focused and analyticsbased will become a key competitive differentiator. At the Centre of the Model: How to Ensure a StrategyAligned Leadership and Culture At the centre of an Agile Strategy Execution Model is leadership and culture. Put simply, leadership and culture are indivisible and, if these are not synchronized and strategy-focused, then strategy execution will flounder and likely fail. In Chaps. 10 and 11, we describe the components of “leadership for strategy execution” as well what a “strategy-aligned” culture might look like. We explain how to shape meaningful value statements (rather than nice sounding words that hang on walls and are generally ignored) and the importance of ensuring structures, policies, processes, decision rights, and information flows support the desired values. Cultural assessment tools, that leverage advanced data analytics capabilities, enable a more precise understanding of cultural gaps and bottlenecks. Communication is an important aspect of getting the culture right. It is a key management discipline in any circumstance, and especially critical when an organization is setting out to implement strategy. We stress, however, that communication should be an ongoing process, rather than a one-off exercise repeated on an ad hoc basis. Messaging must be a constant part of reinforcing the dos and don’ts around strategy. If this is not done, there is a pressing danger that decision makers, and indeed all employees, might revert to inappropriate behaviours. The mantra “communicate, communicate, communicate” is commonly heard, but less often acted upon. Underpinning the Model: Creating a Strategy-Aligned Workforce for the 4th Industrial Revolution Knowledgeable employees are probably the key to organizational success in the 4th industrial revolution. In Chap. 12, we explain that there is a requirement for a fundamental, indeed transformative, shift in the very essence of Digital Age Strategy Management: From Planning to Dynamic…

18 how we view the employee-employer relationship. Firms are increasingly confronted with a generational mind-set shift that values learning and engagement much more than job security. Millennials, for instance, are looking for a very different workplace experience than earlier generations. Indeed, they are looking for a “sense of purpose” focusing on how their own self-esteem and worth is heightened through the work experience, as well as how their learning and growth (and therefore market value) is engendered. In addition, we have little sense yet of the expectations of a post-Millennial Generation that have spent their whole lives living in a fully connected, digital world: for this generation, connectivity is their “mother tongue.” Organizations need to inculcate mechanisms for aligning the individual’s purpose with that of the organization’s, as captured in the mission. This is the essence of engagement. To achieve this, organizations must rethink the traditional job contract, focusing more on aligning the individual’s “sense of purpose” with that of the enterprise (and for many employees, only for a relatively short timescale); greater value will be extracted when we think of how employees and organizations work together, as opposed to employees working for organization—a digital-age concept perhaps, but in many ways little different from the craftbased structures of the yesteryears. Moreover, we explain processes by which organizations can ensure that they have, and are developing, the skillsets and competencies required for delivering to the strategy, such as through strategic human capital readiness frameworks. Collaborative Scorecards In Chap. 13, we explain that with cross-organizational partnerships becoming increasingly prevalent in driving customer value, how Strategy Maps and Balanced Scorecards are being developed to align various organizations (from focused partnerships to mergers and acquisitions) along common goals and themes and that cut across an organization’s functions, departments, and so on. Also explained is how technology is powering collaborative working through the scorecard system: used extensively to drive “social value” and transform the lives of communities in emerging economies and deprived regions. D. Wiraeus and J. Creelman

19 Parting Words: Shifting Paradigms To end the chapter with a further cliché, we are in an age of “shifting paradigms.” How we manage and structure organizations and how we go to market are, and will be increasingly, fundamentally rethought for the digital age. Yet, strategy management is more important than it ever has been throughout its 2500+ year history. Organizations always need goals and must make the right choices for their achievement. This is the essence of strategy. However, organizations need to better understand that strategy is a set of assumptions that must be verified in execution—for this, the fundamentals of the strategy management process must be reconfigured and away from the conventional “planners plan and managers execute” mind-set. Finally, strategy management can no longer be seen as an engineered, sequential process, but as a dynamic system in which all parts continually feed into each other. In short, strategy management, as we reinforce throughout this book, must become agile and adaptive (and know when each is applicable) with the appropriate governance model to ensure that execution of plans can be modified as required without leading to chaos. As General (later President) Dwight Eisenhower once said, “The plan is nothing, planning is everything” [10]. Panel 1: Dr. Norton’s Age 2 Balanced Scorecard System Age 2 Balanced Scorecard Systems Over the last couple of years, Dr. Norton has been evolving a model for Age 2 Balanced Scorecard Systems, which adapt the system for the opportunities and challenges of the digital age (identified by an analysis of mega-trends affecting global economic development and working). As shown in Fig. 1.5, dealing with these mega-trends requires organizations to evolve from being strategy-focused to strategy-learning organizations, which focuses on five dimensions. 1. Networked: Aligning networked organizations in a world that is increasingly boundary-less. Networks are both within the organization (and across functions and regions) as well as between organizations. Collaborative technology, supported by good governance and more empowered working, is critical to ensuring such networks are effective. 2. Human Capital: Developing human capital capabilities in world economies increasingly based on the capabilities of employees (and that are part of the networks). 3. Shared Value: In a world filled with shared value, using the scorecard system to build partnerships to drive benefits for the commercial organization as well as society and communities (becoming good corporate citizens). Digital Age Strategy Management: From Planning to Dynamic…

20 Self-Assessment Checklist The following self-assessment will assist the reader in identifying strengths and opportunities for improvement against the key performance dimension that we consider critical for succeeding with strategy management in the digital age. For each question, any degree of agreement to the statement closer to one represents a significant opportunity for improvement (Table 1.1). 4. Risk: In a world filled with risk, aligning risk with performance through creating risk dashboards that track the risks that impact each objective on the Strategy Map. 5. Analytics: In a data-rich analytic world, using the power of advanced data analytics to test the causal assumptions that underpin the strategy and as captured in the strategic objectives, KPIs, and initiatives. We discuss each of these Age 2 components in subsequent chapters. But note, Norton comments that Age 1, which was essentially about building scorecards, communicating strategy, and alignment, are still important and the foundation for Age 2. It’s about evolution, not obliteration. Fig. 1.5 Age 2 Strategy Management System D. Wiraeus and J. Creelman

21 References 1. Robert Kaplan and David Norton, Measures that Drive Performance, Harvard Business Review, January/February 1992. 2. Robert Kaplan and David Norton, The Execution Premium: Linking Strategy to Operations for Competitive Advantage, Harvard Business School Press, 2008. 3. Frederick W. Taylor, The Principles of Scientific Management, Harper and Brothers, 1911. 4. Employee Engagement Survey, Gallup, 2016. 5. Henry Mintzberg, The Fall and Rise of Strategic Planning, Harvard Business Review, January/February 1994. 6. Sir Winston Churchill, Attrib. 7. See Sun Tzu, The Art of War, Special Edition, translated and annotated by Lionel Giles, El Paso Norte Press, 2005. 8. Joseph L. Bower, Clayton M. Christensen, Disruptive Innovation: Catching the Waves, Harvard Business Review, January-February 1995. 9. See Roy Barden and Elizabeth Watts, Public Sector Innovation Summit 2017 Report, The Hackett Group, May 2017. 10. Dwight Eisenhower, speaking to the National Defense Executive Reserve Conference in Washington D.C. on November 14, 1957. Table 1.1 Self-assessment checklist Please tick the number that is the closest to the statement with which you agree 7 6 5 4 3 2 1 In my organization, strategic planning and execution are part of the same integrated strategy management process In my organization, strategic planning and execution are separate silos in a process My organization shows a high level of agility and adaptiveness in the strategy management process My organization shows a low level of agility and adaptiveness in the strategy management process The senior leadership team fully understands that “strategy is a set of assumptions that must be verified in action” The senior leadership team poorly understands that “strategy is a set of assumptions that must be verified in action” During strategy execution, we continually survey and respond to external changes During strategy execution, we rarely survey and respond to external changes My organization has an established strategy execution framework, such as a Balanced Scorecard or similar My organization does not have a strategy execution framework such as a Balanced Scorecard or similar Digital Age Strategy Management: From Planning to Dynamic…

© The Author(s) 2019 23 D. Wiraeus, J. Creelman, Agile Strategy Management in the Digital Age, https://doi.org/10.1007/978-3-319-76309-5_2 2 From Industrial- to Digital-Age-Based Strategies Introduction In the next two chapters, we describe how the process of strategy setting is evolving for the digital age. This chapter considers what is meant by strategy, the criticality of understanding the longer-term “sense of purpose,” understanding the “function,” that the organization delivers to customers, business model innovation (and why disruptive innovation is something of a myth), and the importance of bringing stakeholders (most importantly customers) into the strategy formulation process. The next chapter looks at setting shorter-term strategic destinations; including shaping quantified short- and longer-term vision and identifying the value gap (present and desired states) (Fig. 2.1). The Potential Dangers of Agility The urgent requirement for organizations to be more agile in their strategy management process is a central message of this book and of the model that we propose. That said, we must be somewhat cautious in religiously applying agile thinking to each and every step of the process. To explain, agile thinking reaches back many decades and has its roots in the lean/total quality thinking of the 1980s. However, it gained significant traction and general acceptance through the publication of the Agile Manifesto in 2001, which sought to deal with the then rising frustration with failed software development projects.

24 Now, much of what emerged from the thinking that went into the Agile Manifesto is sensible. We certainly concur with this comment from two of the key originators, Martin Fowler and Jim Highsmith, that, “No one can argue that following a plan is a good idea—right? Well, yes and no. In the turbulent world of business and technology, scrupulously following a plan can have dire consequences, even if it is executed faithfully. However carefully a plan is crafted, it becomes dangerous if it blinds you to change” [1]. This argument is even more relevant in the second decade of the twentyfirst century than it was at the start of this first. The same can be said of the essential message of the Manifesto’s four values (such as customer collaboration over contract negotiations) and 12 principles (such as collaboration between the business stakeholders and developers throughout the project). Be Careful with the “Sprint” Central to the agile methodology (and as practiced extensively in project management circles) delivery is typically through incremental, iterative work sequences that are commonly known as sprints. Since first introduced to software development, agile thinking and the seductive image of the “sprint” have been somewhat ubiquitously applied to organizational processes or activities—agile innovation, as one example. It is also being applied to strategy management—this is where we must take care. How to Formulate Strategies for the Digital Age Getting Results through Agile and Adaptive Strategy Execution How to Build an “Agile,” and “Adaptive,” Balanced Scorecard System Unleashing the Power of Analytics for Strategic Learning and Adapting Driving Rapid Enterprise Alignment • Map the enterprise strategy • Develop a causal hypothesis • KPI and Target identification • Identify breakthrough strategic initiatives. • Identify strategic risks • Vertical enterprise alignment • Horizontal enterprise alignment • Devolve ownership and responsibility • Agile cross-enterprise collaboration • Align financial planning systems with the strategy • Driver-based rolling forecasts • Identify key operational drivers of strategic goals • Strategy-aligned process improvement • Strategy-aligned project management • Clarify enterprise sense of purpose • Test the business model • Disruptive innovation management • Co-create strategies with stakeholders • Create a Quantified Vision Stage 1 Stage 2 Stage 3 Stage 4 • • • • • Continually test the strategic hypothesis Master advanced causal analytics Analytics-driven strategy reports and reviews Aligning operational analytics with strategic analysis Apply an adaptive learning feedback loop. Stage 5 • • • • • Create a Strategy-Aligned Workforce for the 4th Industrial Revolution • New employer-employee contract employee engagement • Two-way performance conversations • Individual sense of purpose Strategy-Aligned Leadership and Culture Strategy-focused value statements Leadership for execution Align the culture with strategy Create a culture of learning Strategic Communication Fig. 2.1 Stage 1: How to formulate strategies for the digital age D. Wiraeus and J. Creelman

25 James Coffey, Principal of the US-based Beyond Scorecard (and previously a colleague of the authors) makes this useful observation: “Strategy is not like coding. Agile software development involves rapid coding, testing and rework to develop in an iterative manner, relying on rapid feedback throughout the process.” He continues that this is fine in a closed environment where it is straightforward to design and test against requirements, however, “Strategy exists in an open, dynamic environment where outcomes are often impacted by exogenous events where definitive outcomes may not be known for an extended period. You cannot break strategy into small chunks and constantly reassess and change the plan, since each piece of the strategy is interconnected in a variety of ways; changing one will have unforeseen consequences on the rest.” As a result, strategy evolves and changes in a different manner, with the whole strategy considered and changed based on the environment and the impact the change has on the entire strategy. Coffey concludes with, “Agile answers the question, ‘What do we need to do and change to match this set of demands?’ while strategy answers the question, ‘Is what we are doing still relevant in the current environment?’ In Agile, you can define requirements and the development adapts to them; with strategy the environment sets the requirements and you must adapt to them.” The fact is, we need to be both agile and adaptive and understand the difference. Agile points to sudden quick changes—being “able to move quickly and easily,” according to the Cambridge English Dictionary, whereas it defined being adaptive is about “having the ability to change to meet different circumstances” (which does not necessarily mean quickly or easily). Challenging the Notion that “Strategy is dead!” To a large extent, agile thinking (when considered against the background of fast-moving, unpredictable marketplaces) has led to the rising tide of commentators promulgating that “strategy is dead” or more specifically, that the shaping of long-term plans is no longer fit-for-purpose. Many alternatives are about focusing on short-term plans only (a version of the sprint). Now, there is a kernel of something useful here as we explain in subsequent chapters. But first, let’s debunk the death myth. It is bemusing that the validity of strategic planning has been questioned because we compete and operate in a complex, unpredictable, and fast-moving From Industrial- to Digital-Age-Based Strategies

26 global economy. Strategic planning as a discipline emerged in the 1960s and early 1970s precisely because the world was becoming less predictable. Most notable was the experience of Royal Dutch Shell, where the deployment of strategic planning techniques led to their predicting the formation of The Organization of the Petroleum Exporting Countries (OPEC). Consequently, Royal Dutch Shell gained considerable market share during the oil crisis of 1973. Other companies promptly took note. Unfortunately, as we argued in Chap. 1, shaping strategic planning according to the functional diktats of F.W. Taylor was a mistake. Yet, compare the unpredictability of the world in the early 1970s with that of today. Unpredictability has become the norm. As a result, we argue firmly that strategy and strategic planning are required more than ever. Defining Strategy Now, here, we must provide some clarity around definitions. An oddity of the strategy world is that there has never been a universally agreed definition of the term strategy. Therefore, people can argue that “strategy is dead,” but it is rarely clear what exactly they are consigning to the graveyard. Is strategy an end-place? A group of choices and plans to get to that destination? Or a combination of these—or something else? From our experience, this in and of itself is a potential bulwark to successful strategy management and execution. If the senior management team has not agreed what strategy is, how can it be managed or implemented? Case Illustration: A Singapore Clothing Manufacturer A few years ago, one of the authors interviewed a CEO of a clothing manufacturer in Singapore that had succeeded with a Balanced Scorecard program (i.e. delivered to the strategic goals) and asked, “If you were to start again, what would you do differently?” He replied, “That’s easy, I’d get the leadership team to agree what we collectively meant by the term strategy and write it down. I really struggled to lead the crafting of the strategic plan until I realized (in a flash of inspiration while watching soccer at home) that we were all talking about completely different things.” He provided this illustration, “On one side of the table I have a manufacturing director, whose view of ideal (and so his understanding of what strategy should be about) is two colours of jeans in two sizes. Easy to plan and manage. On the other side of the table, I have a marketing director who has to sell these jeans to teenage girls who change their mind about their size and D. Wiraeus and J. Creelman

27 preferred colours every 15 minutes. Very difficult to plan and manage. These two directors live in different worlds, yet both had valid observations and crucial contributions to make. So, I had to get them and the rest of the team to agree on what strategy meant and how it must be delivered.” Harvard Business School Professors: Useful Definitions So, what does strategy mean? There are many candidates, some more useful than others. The esteemed Harvard Business School Professor Michael Porter defines strategy (or more precisely, competitive strategy) as about being different. “It means deliberately choosing a different set of activities to deliver a unique mix of value,” he has said [2]. Porter argues that strategy is about assuming a competitive position, about differentiating yourself in the eyes of the customer, about adding value through a mix of activities different from those used by competitors. To Porter, the essence of strategy “is choosing what not to do” [3]. Porter has said that if a leadership team cannot answer the question, “what don’t you do” in their industry, then they do not have a strategy. Porter’s Harvard Business School colleague Professor Jan W.  Rifkin has defined strategy as, “an integrated set of choices that position a firm, in an industry, to earn superior returns over the long run.” Let’s break this down. An Integrated Set of Choices Strategy is about choice: as Porter said, this is both what to do and, importantly, what not to do. Selected choices should work together (integrated) in delivering value and sustainable competitive advantage. This highlights one major weakness of the strategy “sprint.” Focusing on the short term only will likely lead to not making sensible choices and the continuous grabbing at disparate opportunities (go—or sprint to—where the money is NOW) and so not being disciplined in what not to do—resulting in an inability to properly develop and nurture a sustainable differentiator. Position a Firm, in an Industry Knowing precisely what your value differentiator and capabilities are enables the expending of energies in the right places. Expertise and capabilities are further developed, and reputations enhanced—a good place in which to be. From Industrial- to Digital-Age-Based Strategies

28 Over the Long Run Organizations do not exist just to deliver the short-term numbers (although the lunacy of the quarterly reporting hysteria would suggest otherwise). Where you want to be tomorrow is as important as where you are today. The trick is accelerating the speed of how you get to the desired destination and the agility/adaptiveness to switch paths on the way to that envisioned place. Defining the Sense of Purpose A fundamental question for all organizations to answer is, “why do we exist?” Many would casually dismiss this question with, “to make money and deliver shareholder value,” (if a commercial organization) and, for any enterprise, “to deliver a product or service to a customer.” Well, yes, but that’s not the whole story. The Mission Statement Let’s start with the mission statement. This defines the purpose of the organization: why it exists. A mission statement generally doesn’t (or at least shouldn’t) change much over time, and cannot possibly be agile. Google’s mission “To organize the world’s information and make it universally accessible and useful” has been stable since the firm’s launch in 1998: Advice Snippet A useful first step in any strategy formulation exercise is to get the senior team to agree on what they mean by the term strategy. Without agreement, what possible chance do they have of shaping the most appropriate objectives or initiatives? And how can buy-in possibly be achieved? We recommend the following steps: 1. Each individual leader writes down on a piece of paper what they understand by the term strategy. 2. Each participant then reads out their definition (the differences can be astounding although common themes will be evident). 3. The team discuss and agree upon what strategy means for the organization. 4. Capture the agreed statement and use it in each strategy review session and for communication purposes. D. Wiraeus and J. Creelman

29 this in an industry that is at the forefront of rapid change and “disruptive innovation.” Note too that the mission makes no mention of the internet or of search engines, so developing self-drive cars does not conflict with the mission. Google has always understood that it does not exist to offer a narrow product or delivery vehicle, although it recognizes the requirement of being adaptive within the confines of the mission. We argue that neither the product nor the delivery vehicles should be included in such a statement. Case Illustration: The Ford Motor Company (Disruptive Innovation in the Early Nineteenth Century) To illustrate this, we go back in time to the beginning of the twentieth century. Henry Ford famously said, “If I had given customers what they asked for, I would have given them faster horses” [4]. He realized that people weren’t actually buying horses and carriages, but a “function”: that is, the function of carrying people safely and quickly to their destination. Automobiles (that became known as cars due to people’s difficulty in moving away from the term carriage) did that much better. Ford saw this, and the mass production of cars began. The automobile essentially put carriage makers as well as the providers of horses out of business—today, we would call this “disruptive innovation.” Case Illustration 1: Kodak (Not Paying Attention to the Function) A modern-day equivalent is Kodak, who stupidly held on to the fictitious belief that their customers wanted to buy film or film processing. They did not; they were simply available vehicles for meeting a function—capturing memories, and so on. Moreover, when Kodak started to suffer the consequences of digital technology (which ironically, Kodak essentially invented) they began to enable customers to capture photographs on a DVD and then send them out for processing, so clinging onto a key strand of their belief system and their treasured century-old business model. In his book, “The Decision Loom: A Design for Interactive Decision-Making in Organizations,” Vince Barabba, a former Kodak executive, offered insight on the choices that set Kodak on the path to bankruptcy. One extraordinary From Industrial- to Digital-Age-Based Strategies

30 quote comes from Steve Sasson, the Kodak engineer who invented the first digital camera in 1975. Management’s reaction was apparently “that’s cute – but don’t tell anyone about it” [5]. It would take several decades more before Kodak would fully understand that “don’t tell anyone about it” is not a sensible long-term strategy. They had over 25 years to prepare for the cataclysmic disruption that they apparently “didn’t see coming!” or more honestly—purposefully chose to ignore, in the hope, we guess, that no one would notice. Case Illustration 2: Blockbuster (Not Paying Attention to the Function) A further example is Blockbuster, the once dominant supplier of rented videos/DVDs who were put out of business by Netflix (who Blockbuster could have purchased in 2000 for $50 million and which, as of May 24, 2018 had a market capitalization of $153 billion). Blockbuster foolishly believed that customers wanted to go to stores and line up to rent a film. Moreover, they were hit with fines if they returned the rentals late, which was a significant revenue stream for Blockbuster—we would suggest that relying on extensive income by punishing customers is not a good place to be. Netflix offered the primary function (enabling customers to view films conveniently and at their leisure) through online streaming and subscription (so no late charges). The Blockbuster horse and carriage was out of business. There are many other recent big-name examples of this disastrous belief that it is all about the product and a refusal to change the underlying business model. Unquestionably, there will be many more to come. The Relevance Question Therefore, perhaps the key strategic question that senior executives must constantly ask is what we call the “relevance” question: Is what I am making or selling still relevant, and will it be relevant five or ten years from now? Relevance means constantly questioning whether how the function is being delivered is under threat as well as the strategy and its execution hypothesis. Adaptiveness is required—which is essentially what evolution is (evolution is never agile). D. Wiraeus and J. Creelman

31 Reinventing the Business Model Although being cognizant of the disruptors that are shifting the market conditions (competition, distribution, regulation, customer behaviours, macroeconomic factors, etc.) is critical, it is just the beginning of shaping a robust strategy. What’s next is for leaders to ensure the business models are fit-for-purpose. Hanging on to outdated business models is hardly new, but the impact of doing so is much greater than ever before. The cited Kodak and Blockbuster experiences are examples of how these drivers play out: total refusal to abandon a strategy and business model that had worked very well (in Kodak’s case, for over a century); failure to monitor (or accept as important) the changes in customer behaviour; and a veritably ostrich-like “head in the sand” response to a dramatically changing world. The brand goes stale, core strengths languish, and opportunities to keep pace with—or get in front of—changing customer needs pass them by. The world evolves; they don’t. Research Evidence: A Gloomy Picture 2014 research by The Palladium Group (for whom the authors of this book were then working) painted a gloomy picture of how organizations were Advice Snippet To begin to understand that the organization exists to deliver a function and not a product or service, we ask leaders to answer two questions and stipulate that they require different answers. 1. What products and services do you sell? 2. What do you sell? While the first question elicits many answers, the second is usually met with blank expressions (as people typically think it’s the same as question 1). Oftentimes, getting to the root of the function is a difficult and painful conversation for leaders—one CEO of a large telecoms firm says that their 9/11 was the day Apple released the iPhone, as they realized that they would not have known how to do this (or even why it was important). They had failed to realize that a cell phone was not simply a mechanism for making telephone calls, but a personal communication system. Apple got this—as did Ford and Netflix in other domains. So, always keep front-of-mind that the products and services the organization sell is not the same as what they sell. From Industrial- to Digital-Age-Based Strategies

32 dealing with significant change. Fully 82% of the near-3000 organizations surveyed (and from across the globe) agreed that changes in their business environment were intense, and 72% believe their business model will be under threat in the next five years (61% state that this was already the case). Worryingly, although leaders knew that the danger comes from outside the organization, few were doing much about it, with only 24% of organizations constantly monitoring their competitive environment. Tellingly, those that did were 6.7 times more likely to achieve breakthrough financial performance than those that did not. Furthermore, only 14% regularly updated their strategies in response to changes in the market. Although most research respondents (93%) agreed that innovation is a key factor to their future success, just 36% believed they were good at innovating. Indeed, most respondents believed they were poor at all forms of innovation studied, including incremental innovation (product/service and process innovation), customer experience innovation, and business model innovation (reinventing aspects of an organization’s value proposition or operating model). Sixteen per cent did not use any innovation at all. In a time of ongoing disruption, these numbers are concerning, to say the least. Disruptive Innovation: Something of a Myth Developing strong and innovative strategies requires a mind-set shift from an internal bias to an external bias. We must bias our decision-making process towards what the customer/market/environment is telling us, so to understand which key trends and advances will most affect the value delivered. Yet, much of what we see in the current batch of innovation offerings does not do this well. Actually, a lot of nonsense is promulgated about innovation. Just about every consultancy has an offering that promises a “proven” approach (the much sought-after plug and play solution) to becoming a master innovator and consequently reaping rich rewards. New models, ideas, and some frankly bizarre measurement systems are explained in books and are “wowing” delegates at conferences and workshops. Self-proclaimed “Thought Leaders” or gurus are building empires. Conferences are packed to the rafters. It’s big business and will only get bigger as there’s a big demand. We would argue, however, that there is no such thing as disruptive innovation. If you are being disrupted, you are simply not paying attention. So, here’s a recommendation that many, at first, might find odd. We recommend that organizations should forget business model innovation, process innovation, product innovation, and so on—at least as starting points. D. Wiraeus and J. Creelman

33 True innovation does not start from innovation. It starts from competitive advantage and understanding, through powerful mapping systems that already exist, the technologies that drive this (and not just advanced digital technologies), gaining clear insights into how technologies are being deployed and combined elsewhere (and don’t be myopic and focus on your own industry), and plan from this position. The goal should be to constantly outmanoeuvre the competition—that’s competitive advantage. Technology-Based Planning: Outmanoeuvring the Competition In a LinkedIn blog in 2016, consultant Iain Wicking provided powerful insights into this from the viewpoint of technology-based planning. “Via technology-based planning, a “disruptive technology” is no more than an observable manoeuvre in “technologyspace” that can be easily countered in a number of ways. Given this, disruptive technology innovations are an illusion and the myth peddled by so-called thought leaders that these innovations cannot be dealt with proactively. We should be able to see disruptive influences emerging well in advance and plan defensive or offensive manoeuvres accordingly” [6]. New Wine in Old Bottles Technology-based planning might seem like a digital  age concept and something only of interest (and understandable) to technological whiz kids. Yet, and once more referring to the multiple influences of the early twentieth century Ford disruption success story, this is precisely the approach they took (without the sophisticated digital mapping capabilities of course). Moreover, (and with very different technologies than Ford) today, a handful of some of the most successful companies, such as Apple and Microsoft, were built on a form of technology-based planning. Steve Jobs intuitively understood that the foundation for building, growing and maintaining an organization had to be technology acquisition and utilization. He artfully manoeuvred in the technologyspace and did it mostly in his head. For this, he was considered a genius. Giving that technology-based planning will be a new (and even alien) concept to many readers steeped in the MBA-style worship of finance-based planning, we have outlined what it looks like in Panel 1. From Industrial- to Digital-Age-Based Strategies